New Zealand's beef sales channels dried up and prices slumped due to Covid-19.
A focus on the food service sector and development of its premium brands portfolio are key strategies the Alliance Group is employing to overcome global supply chain issues caused by the Covid-19 pandemic.
Alliance Group general manager-sales Shane Kingston says these issues present the farmer-owned meat marketer and processor with its most significant challenge currently. Like many NZ exporters of primary produce, it's dealing with a perfect storm of container shortages, delayed shipping transit times, and productivity logjams at ports, and with 2020 a year of unprecedented global volatility.
Despite this, Kingston is upbeat about the company's prospects as it transitions to become a world-class food and solutions co-operative, because of a strategy predicated on maximising operational efficiency and capturing greater market value.
He and his sales team have had to be nimble in the past year to 18 months as sales channels, particularly for beef in China, dried up and prices slumped.
They had to move fast to divert product across markets and change product forms for the different channels.
As Covid-19 spread around the globe last year, key economies and markets in Europe, North America and Asia also went into lockdown, demand became increasingly unpredictable, and prices softened. Beef prices declined over the same period and there was a significant price correction for venison.
The company, however, has been able to weather the storm, Kingston says, through product diversification into retail and delivered food service channels in markets such as the UK and US.
Alliance worked with overseas customers to make sure products continued to flow and changed product forms so cuts of meat were produced that were more versatile and could be sold through multiple channels. It also looked to reduce inventory risk as the Covid-19 pandemic gathered pace.
Kingston says a good example of where opportunities exist for Alliance Group to enhance the profile of its red meat is the US, on the back of growing demand from consumers for products that are more natural, healthy and better for the environment and animal welfare.
Last year the company launched a premium lamb offer for farmer-suppliers as part of its differentiation of red meat products. The Pure South Handpicked Lamb programme uses an assessment system to measure quality, with the qualifying lamb exported to premium retail markets in North America and Asia.
Suppliers receive a minimum additional 10c/kg premium for this product on top of the 15 cent premium Alliance Group currently pays for lambs raised without antibiotics.
The Handpicked Lamb programme built on a successful programme for beef, with the end product being supplied to increasingly discerning consumers around the world who are willing to pay a price premium for the company's red meat products.
The programme is open to Alliance Group's Platinum and Gold shareholders, who supply 100 per cent of their ovine livestock to the company.
The meat is hand-selected through Alliance's plants and then aged to ensure quality.
The Handpicked Lamb programme expands the co-operative's award-winning Handpicked Beef range — the 21 Day Aged Beef and the 55 Day Aged Beef programmes.
Kingston says farmers supplying stock through these programmes are enthusiastic about them and are constantly striving to maximise quality.
He says to accommodate the expansion of the premium beef programme for suppliers, Alliance Group has embarked on a major reconfiguration of several of its plants, led by a $37 million investment in its Lorneville plant near Invercargill.
The reconfiguration is part of the company's beef growth strategy and is in response to farmers seeking more beef capacity in peak season.
The investments are also part of a plan to manage refrigeration space across the company's network of plants so that they keep running as efficiently as possible and so breakdowns are kept to a minimum.
The investments for Lorneville approved in the past year total $37.1 million, and comprise:
• $5.4 million to re-configure the venison plant so it can process cull cows.
• $3.2 million to upgrade an engine room.
• $12.5 million for a primal cutter and middles machine.
• $16 million to automate warehousing.
The company began processing cows and light bulls at Lorneville near Invercargill in April after the completion of an 18-month project to further upgrade its venison plant on the site.
It has seen a steady increase in supply volumes year on year and farmers have been seeking more beef capacity in peak season. The Lorneville investment programme meets this need but also benefits the company's deer farmers who have access to increased venison processing capacity.
The new beef processing facility will free up space at the co-operative's Mataura plant, which is also in Southland, for prime steers, heifers, and bulls.
Kingston says the focus on a premium beef portfolio and strengthening its beef performance at its Mataura, Levin and Pukeuri (Ōamaru) plants are deliberate responses to the historic global market volatility.
The project, apart from ensuring consistency of productivity across the company's processing network, creates a longer season for its venison/beef plant employees at Lorneville and adds new jobs to the region.
Alliance Group is Southland's largest employer and the Lorneville plant alone has almost 2,000 people in total onsite at peak capacity.
The company's last annual report said plant performance across its network continues to improve year on year.
"Yield performance is improving across all species and this means we are capturing more saleable product. Quality is also improving with the number and value of customer complaints falling."
Plant reliability across every species has also risen due to the company's investment in plants, planned maintenance programmes, and the co-operative doing a better job of training and developing employees to manage breakdowns, which were becoming fewer, thereby improving processing capacity for farmers.
The $16 million, 18-month warehousing project, which accounts for almost half of the Lorneville project expenditure, will introduce automation to the warehousing system and laser-guided vehicles for the storage and retrieval of product.
The plant's current frozen product warehouse operation is more than 30 years old, and the new warehouse management system will improve the health and safety of employees, enable the co-operative to further unlock advantages of scale, and lift the plant's efficiency and competitiveness.
More than 60 people are required to work in the operation during peak processing and manual handling of the fresh product. With each box weighing around 22kgs, employees risk muscular-skeletal injuries, which the new automation process will minimise.
Improved handling of cartons and product, through reduced use of forklifts and fewer cases of conveyors jamming, will reduce downtime in further processing rooms.
Product damage and potential safety risks will also be minimised because frozen product boxes do not stack well in the current warehousing system.